Yamada Green Resources

UobKayhian on 8 June 2012

Investment highlights
· We see value emerging from the recent price weakness and re-iterate our BUY recommendation but with a lower target price of S$0.24. Earnings are expected to remain robust despite a short blip in weather and we do see a bumper dividend payout when they report their full-year earnings in August this year.
· The target price translates to 3.0x 2012F PE, pegged to Singapore-listed peers’ average. Yamada Green Resources (Yamada) is currently trading at 3.0x FY11 PE and 2.1x FY12F PE vs an earnings growth of 50.0%.

Our view
· 9MFY12 revenue and earnings had exceeded FY11’s full-year results but share price slumped 37.5% yoy Yamada had reported 9MFY12 revenue of Rmb494.8m and net profit of Rmb158.9m, registering a growth of 58.5% and 49.5% respectively. This was driven by the enlarged land base as the group had almost doubled its shiitake mushroom cultivation base to 5,134mu from 2,614mu previously. Although output/mu has dropped due to the exceptionally wet weather in 3Q12, we think the group will still be able to meet our FY12 earnings forecast of Rmb169m, registering a growth of 50% yoy.
· The company had also provided an update on the production of synthetic logs. Yamada is facing delay in obtaining the logging license to harvest eucalyptus trees due to the new initiatives from the government to suspend all harvesting of natural forests. Although the group’s plantations should not be covered by the directive as they are planted/ man-made, Yamada will co-operate with the local government and continue to pursue its application. Yamada had plans to use the self-owned eucalyptus trees to fulfill 20% of the synthetic logs requirement in order the mediate rising raw material prices and ensure consistency in the quality of their edible fungi. As the group has yet to receive relevant license, Yamada would source the synthetic logs from the existing suppliers in the meantime.
· Yamada had postponed dividend payment for half a year when they changed the close of the financial year from 31 December to 30 Jun last Aug 11. In the financial year ended Dec 2010 previously, Yamada declared a dividend of Rmb0.043/share or a dividend payout of 16.8%. Although this was slightly lower than the 20% recommended in the prospectus during listing, we should still expect a decent dividend payment of 1.3 S cents/ share or 8% yield if we peg the dividend payout ratio at 16.8%.